By Melanie Gouby
The International Monetary Fund (IMF) has agreed to grant a $2.5 billion loan to Sri Lanka despite allegations of human rights abuses by government troops during the conflict against the guerilla group known as the Liberation Tigers of Tamil Eelam (LTTE).
In February, Sri Lanka urgently requested an IMF credit facility of $1.9bn to stabilize its balance of payments rapidly approaching negative numbers because of a combination of declining exports and withdrawals of foreign investments in government bonds.
However Britain and the US, with the support of other nations, asked for the application and approval process to be delayed because of human rights abuses allegations linked to the Sri Lankan army offensive in the North.
The offensive was the last stage of hard fought war against the LTTE, otherwise known as the Tamil Tigers.
It lasted 6 months during which many civilians were displaced and used as human shields by the guerilla group as it retreated.
Despite the presence of civilians, the government ordered the shelling of Tigers held areas, thus possibly killing thousands of innocent people.
Following the end of the fighting, refugees were put into camps from which international aid organizations and media have been barred, with the exception of the United Nations.
This created unease over the IMF loan among a few western nations, including Britain who abstained to vote on Tuesday.
Nonetheless the IMF agreed to grant the loan.
Dominique Strauss-Kahn, the managing director of the IMF said that “The end of the conflict provides Sri Lanka with a unique opportunity to undertake economic reform and reconstruction, which would be key to laying the basis for higher economic growth in the years ahead”.
The decision has brought criticism from human rights groups.
Human Rights Watch described it as a “reward for bad behavior” to the Sri Lankan government.
The organization had already alleged that the refugee camps of Vavuniya in the North are similar to “concentration camps” and that a “genocide” is taking place.
The IMF board, composed mainly of Western representatives, grants loans on the basis of economic and financial factors, reminded Mr. Strauss-Kahn.
Colombo, for its part, has promised to rehabilitate the refugees within six months and to negotiate rapidly a just settlement of the conflict with Tamil leaders.
Devastated by thirty years of conflict, the Tamil Tigers occupation and the recent blitz war led by government troops, the North and East regions of Sri Lanka are left with no basic infrastructures and a dying local economy.
In the first quarter of 2009, Sri Lanka’s economy grew at its slowest pace (1.5%) in six years as the global recession curbed the demand for the island’s exports, and the war engulfed a large part of the GDP.
But the end of the war may bring the necessary calm to invigorate growth. “With the war ending, an improvement in confidence will draw investment and tourism”, Shivanta Meepage, senior analyst at Acuity Stockbroker Pvt. in Colombo told Bloomberg, “The northern regions will come into play in some time”.
The government hopes to increase tourism by 20% each year and is launching a worldwide campaign to advertise the island holiday potential.
Dhammika Perera, chairman of the Board of Investment of Sri Lanka, said in a press release that “Foreign direct investments could quadruple to as much as $4 billion in three years”.
The IMF’s conditions to the loan include the reconstruction of the conflict affected areas of the country, as well as the reduction of military expenditures.
A press release published by the Sri Lankan government says that the loan will be used to help vulnerable segments of society, but “it remains to be seen”, says Susrutha Goonasekera, Social Protection specialist at the World Bank in Colombo. “The government has not looked at social protection options so far but it might be because of the lack of fiscal opportunity. We can hope the loan will change this”.
The debt contracted by Sri Lanka will amount to 81% of its GDP, less than in 2002 when it was 106%. The Central Bank estimates that by the end of 2013, it should amount for 65% of the GDP and should be completely paid off within forty years.
